Weekly Buzz: ⏰ Instead of timing the market, try this

05 April 2024

It’s always tempting to try to time the market – selling your stocks just before they fall and buying back in just before they rise. The problem is, it almost never works out. Here’s what you can do instead.

What’s so hard about timing the market?

The trick to this feat isn’t just knowing when to flee the market: you also need to know when to flood back in. And getting both decisions right – selling at the peak and buying at the trough – is rare in any single market cycle. Over decades, it’s virtually impossible.

Don’t just take our word for it. These are the results from a study that simulated 720 strategies across several stock markets, using three of the most commonly used timing signals: valuation ratio, mean reversion, and momentum.

690 of the strategies (or 96% of them!) didn’t work – meaning, they failed to beat a simple buy-and-hold strategy. And that’s before factoring in any trading or tax costs.

As for those 30 strategies that did work, well, it turns out that was mostly down to luck, as the researchers acknowledged. See, if you ask a large enough number of people to repeatedly flip a coin, someone will flip ten heads in a row. And by the same law of numbers, and with enough experimentation, you can expect some timing strategies to generate positive results.

What’s the takeaway here?

There’s an old adage in the investing world: success isn’t about timing the market, but time in the market. The takeaway from this research: beating the market is exceedingly difficult. Instead, you could just buy the market – by staying invested with a well-diversified, resilient portfolio (shoutout to our General Investing portfolios).

And the key here is to stay invested, because while the stock market has climbed higher over the long haul, it’s also had its share of downturns along the way. Staying invested through the ups and down lets you reap the benefits of compound interest.

📰 In Other News: China’s wooing back investors

Foreign direct investment in China (we break this down in our Simply Finance below) fell 8.0% year-on-year in 2023, a decline that signals waning corporate confidence. As if in response, China laid out the welcome mat for global business leaders.

So far, a patchy economic rebound and property sector woes have kept investors wary. To reignite investor interest, Beijing held a week-long series of high-profile events, including a roundtable with President Xi Jinping and 15 US business leaders. Among the various pledges made: equal treatment for foreign firms, and a reaffirmation that the country will hit its 5% growth target this year – overtures meant to tackle the flight of foreign capital.

And we’re seeing an upward swing in China's stock market, marked by the month’s steepest gain of 1.64% for the blue-chip CSI 300 index. A key catalyst for this has been a boost in manufacturing, with the private Caixin Manufacturing PMI showing an expansion that outpaces any in the past 13 months.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: Foreign direct investment (FDI)

When a company from one country decides to invest in or acquire businesses or assets located in another country, that’s foreign direct investment (FDI). This can take many forms: building new facilities, training local employees, or purchasing stakes in local enterprises. FDI brings in new capital, technology, and expertise to the host's economy. Besides fostering economic growth, FDI also signals international investor confidence.

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🚀 Growing your cash has never been so Simple 

Simple Cash portfolios are ultra-low risk, offer 3.7%–4.6%* p.a. on any amount, and you can also leverage the power of compound interest, allowing your wealth to snowball over time.

*3.7% p.a. represents the projected rate for Simple. 4.6% p.a. represents the yield to maturity for Simple Plus, as of 29 February 2024.

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